Entrepreneurship and Innovation in Emerging Economies

INTRODUCTION

Water-borne diseases are one of the primary reasons for the illness among both the children and adult population in India. The lack of clean drinking water to a vast segment of the population results in people drinking contaminated water from unprotected sources. According to a recent report by the United States, nearly 1 lakh (100 thousand) people die in India due to water-born diseases every year (Gupta 2014). Diseases like diarrhea and pneumonia are cause of nearly on third of the total deaths among the children in India. There are several causes for the prevalence of water-borne diseases like the presence of chemicals, agricultural waste, pesticides, etc. Another fact which leads to contamination of drinking water is the poor sanitation facilities available in India. Around 638 million people in India still defecate in the open in India. While a major part of the country is not covered by the tap drinking water, the quality of drinking water supplied by government through pipes too is questionable. And nearly two-thirds of the total population in India don’t treat their drinking water by any means in India. The main reason for this is that a majority of Indian population living in rural areas and urban slums can’t afford to buy portable water suppliers which can help in reducing the water-borne diseases and improve the public health of people. Even though some people boil their water before drinking, it doesn’t give protection against the chemicals which are dissolved in the drinking population. The present paper gives a business model for the manufacturing and supply of cheap water purifiers which can be easily installed and used in homes. The paper covers all the key business model components like market factors, competitive strategy factors, internal capabilities, etc.

OVERALL LOGIC OF VALUE CREATION

The current business model which will be presented in the report is basically intended to create value for all the stakeholders involved. The proposed venture to manufacture affordable water filters falls under social entrepreneurship as it is mainly intended to profitably solve the problem of lack of pure drinking water to the poor people living in India and other poor South Asian countries surrounding it. With a social objective the new proposed venture will fill the institutional void of  lack of a product market for low cost water filters (Khanna & Paleppu 2010). With a new affordable water filter, the firm proposes to fill this void profitably. The proposed venture will manufacture water filters which don’t need any water filters to function and will be priced at just Rs. 1,000 (approximately US$ 17). The proposed business will create immense value for consumers in the form of easy access to clean drinking water. Promoters will be able to satisfy the demand for affordable water filters profitably. The fixed costs for the setting up of the business and the manufacturing plants would be Rs. 5 million. The approximate variable costs for manufacturing a single water purifier is expected to be Rs. 250. The total cost of manufacturing a single water purifier including the marketing and promotion expenses would be Rs. 750. The proposed venture is expected to make a profit of Rs. 250 (approximately US$ 4) per each of the water filters that will be sold. This translates into a good profit margin of 25 percent. As many of the poor people in the rural can’t afford to pay the entire amount for buying a water filter in a single instance, they will given an option to pay the amount in equated monthly installments (EMIs). To this end, the company will enter into agreements with financial institutions like banks and micro finance institutions (MFIs) which are active in the India’s villages. Option to pay for the water filters in installments will help in reaching more number of persons in the target population.

PRODUCT TO BE   OFFERED

As mentioned in the introduction of this spread, water-borne diseases are spreading at a rapid rate in India. Many poor people living in both rural and urban areas now have increased awareness levels regarding the problems caused by impure water. The result is a vast and untapped market for affordable water purifiers. According to the market research firm Market Pulse, the water purifier market in India would grow by 229 percent (from Rs. 18.64 billion to Rs. 61 million) between the years 2012 and 2017 (MSN 2013). But a major issue with the water purifiers which are available in the Indian market was that they were copies of water purifiers used in the rich western countries. Water an average water purifier costing Rs. 10,000 they are quite expensive and unaffordable to many poor Indians. Another major problem with the existing water purifiers was that most of them work on electricity. As just 52.5 percent of the total villages in India have access to electricity, it will not be possible for use water purifiers which work on electricity. Hence, the product to be offered by our company will a low cost water purifier which will be affordable to the urban and rural poor in India. These water purifiers will be portable (weighing just 1.5 kg) and don’t need electricity. Maintainence of these water purifiers will also be very easy and can be performed by regular technicians as it involves the change of a filter once every year.

TARGET MARKET

The target market for the portable water purifiers will be people living in urban slums and people living in the rural areas. The estimated per-capita income of these people is Rs. 816 per month. As these poor people end up spending a major part of their earnings on food, they have very limited disposable income left out to buy expensive water purifiers or bottled drinking water which is generally preferred by the rich people in urban areas. Another potential target market for the cheap water purifiers that will be produced by our firm will be the government itself. Most of the state governments in India provide free or heavily subsidized necessary products like bicycles, solar water pumps, water purifiers, etc. to the poor people in India who can’t afford them on their own. As the products that will be made by our company will be affordable government can be persuaded to buy them, which can be distributed for free to the poor. Any success in persuading the government to buy our water purifiers will open a vast market at one shot.

FINANCING OF THE VENTURE

The form of financing to be selected for a new venture depends on multiple factors  availability of formal sources, long term sustainability of proposed venture, and the spread of venture capital firms (Barry 1994). Formal sources of finance will be chosen for financing this business. Formal sources like banks and business financing companies will be approached for financing the business. The initial basic funding for the project will be arranged by the promoters, which will utilized for tasks like identifying the place for setting up of the factory and promotional activities. The main funds that would be sourced from banks and financing companies. Another key source of financing that will be considered will be the venture capital firms and angel investors.

LOCATION OF THE VENTURE

The location of the venture including its manufacturing plants will have a lot of beating on the firms success (Florin, Lubatkin, and Schulze 2003). The proposed venture will be based in India. As mentioned above, with the growing awareness regarding the importance of pure drinking water, the demand for water purifiers in increasing. The registered office of the venture will be located in one of the two cities where the manufacturing plants for the proposed venture will be based, viz. Chennai and Ahmedabad. Chennai and Ahmedamabad with their relatively infrastructure facilities are among the most suitable places for the location of manufacturing facilities. Semi-skilled and skilled labor force are available in adequate numbers in both these cities. Another key of locating the venture in India is to tap into the export potentiality for low cost water filters. Most of the South Asian countries neighboring India also suffer from the problem of limited or no access to clean drinking water. The availaibility of affordable water filters in these countries is also limited due to the reasons as was discussed in the case of India. Export of our water filters to these neighboring countries like Nepal and Srilanka is a good opportunity which can be explored.

ADDITIONAL RESOURCES THAT NEED TO BE ACQUIRED

Apart from the financial resources, the firm may need some other kinds of resources for it to successfully run its operations. Some of the most important of these resources for a venture with specific emphasis on manufacturing, marketing is land and human resources. Since the manufacturing plants and offices for the new proposed venture will be located in rural and semi urban areas, land can be acquired at economical rates. In cases where offices need to be established in urban areas where the land costs are higher, office spaces will be rented out instead of buying the land. A lot of people will be needed to work in the manufacturing plants of the venture and as sales representatives. Well trained human resources will also be important for the maintenance for providing good after sales service to the customers (Schneider and Bowen 1993). People to work in the manufacturing plants are available adequate number in both rural and urban areas. For the sales function, educated and unemployed youth can be deployed to go on a door to door sales job. It is also proposed to sell the water filters through the Kirana stores (Indian version of convenience stores) in the rural areas.

ENTREPRENEURIAL STRATEGY AND VENTURE’S COMPETITIVE ADVANTAGE

The core entrepreneurial strategy for the new venture will be based on the theory of fortune at the bottom of the pyramid propounded by Prahlad and Hart (2002). As there are millions of families living in India without access to clean drinking water, providing a good alternative where they can get clean drinking water for an affordable price can yield great returns for the firm. The small profit which the venture will get will build up into a major sum over the long term and help the business grow faster. Nearly 4,000 million people live on annual incomes which are less than US$ 2000 (Prahlad and Hammond 2002). Targeting a chunk of these people profitably will be the entrepreneurial strategy for the proposed firm. The proposed new venture will enjoy a good competitive advantage over the existing firms in the market as the products sold by them are beyond the reach of our target population. It will also take a lot of time for the existing companies to come up with their own versions of low cost water filters. The new proposed venture will cement its position in the market by then.

LONGTERM SUSTAINABILITY OF THE VENTURE

 The sustainability of a social venture depends on factors like the ability to have access to adequate capital and other resources in the initial days of its operation (Weerawardena And Mort 2006). As the proposed venture will be in the area where a lot of unsatisfied demand exists, the long term prospects of the venture are expected to be great. The spectacular growth in the demand for water filters in India will sustain the business in the initial years after it is founded. The venture may incur some losses due to the high fixed expenses that need to be incurred for the setting up of the manufacturing plants. The venture will start recovering the fixed expenses once the reach of the proposed venture increases over the first two years. Since the target population for the proposed venture is the rural poor, promotional expenses will be limited and will not strain the working capital of the firm. Once a significant part of the target market is reached and the fixed costs are recovered in the firm will start making profits from the third year of its operation. The key for the long-term sustainability is to create awareness regarding the product among the target population quickly so that the cash flow starts moving and need for borrowing any  more money in the future will be limited.

SELF-REFLECTION

Being a young management with loads of ambition to succeed in the business world, social entrepreneurship is great place to start my entrepreneurial journey. Social entrepreneurship offers me a platform to achieve my goals in life while profitably satisfying the unfulfilled needs of people living in some of the poorest parts of the world. Success in this initial entrepreneurial stint can encourage me in pursuing a number of social entrepreneuship projects in the future.

 

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REFERENCES

1. Barry, CB 1994, ‘New directions in research in venture capital finance’, Financial Management, vol. 23, no. 3, pp. 3-15.
2. Florin, J, Lubatkin, M, & Schulze, W 2003, ‘A social capital model of high-growth ventures’, Journal of Management Inquiry, vol. 46, no. 3, pp. 374-384.
3. Gupta, YP 2014, Poor water quality, a serious threat, viewed 2 April 2014, < http://www.deccanherald.com/content/63740/poor-water-quality-serious-threat.html>.
4. Khanna, T, & Palepu, KG 2010, Winning in emerging markets: A road map for strategy and execution, Harvard Business Press, Cambridge.
5. MSN News 2013, Water purifier market may grow 229 percent by 2017, viewed 2 April 2014, < http://news.in.msn.com/business/water-purifier-market-may-grow-229-per-cent-by-2017-1>.
6. Prahlad, CK, & Hart, SL 2002, ‘The fortune at the bottom of the pyramid’, Strategy + Business, vol. 26, pp. 1-16.
7. Prahlad, CK, & Hammond, A 2002, ‘Serving the world’s poor, profitably’, Harvard Business Review, vol. 7, pp. 1-11.
8. Schneider, B, & Bowen DE 1993, ‘The service organization: Human resources management is crucial’, Organizational Dynamics, vol. 21, no. 4, pp. 39-52.
9. Weerawardena, J, & Mort, GS 2006, ‘Investigating social entrepreneurship: A multidimensional model’, Journal of World Business, vol. 41, no. 1, pp. 21-35.